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Lower Feed Costs Provide Pork Producers with Some Relief

Although the U.S. breeding herd is not dropping fast enough to bring pork production back to profitability, falling corn prices and prospects for lower soybean meal prices this fall are providing rays of hope for pork producers in the future, said Purdue University agricultural economist Chris Hurt

Jul 07, 2009

Although the U.S. breeding herd is not dropping fast enough to bring pork production back to profitability, falling corn prices and prospects for lower soybean meal prices this fall are providing rays of hope for pork producers in the future, said Purdue University agricultural economist Chris Hurt.

“The USDA reported on June 1 that the breeding herd was down about 3%, with producers’ farrowing intentions down 2% this summer and 2% this fall. But pork supplies will not change much even with the smaller breeding herd,” said Chris Hurt.

Fewer litters would logically mean corresponding reductions in pork supply, but more pigs per litter and somewhat higher marketing weights may offset the farrowing reductions.

As one would expect, when sow culling decisions are made, the least productive sows are removed from the breeding herd, leaving the most productive sows, which produce more pigs per litter, he added.

“For example, in the first half of 2009, the number of pigs per litter increased by 2.5%, compared with an average annual (improvement) rate of just 0.8% over the past decade,” he said.

Corn and soybean meal prices, driven down by recent reports of higher than anticipated total production, may push market weights slightly higher, Hurt speculated. “Pork production is expected to drop only about 1% over the coming 12 months. This small supply reduction will not boost prices back to profitability in 2009,” he noted.

The loss of pork demand due to H1N1 influenza virus has likely been the single most significant factor in causing the failure of a spring pork price rally, Hurt said. “It is most likely the loss of exports rather than loss of domestic demand that has caused the price weakness. The May trade data will be released on July 10 and will give the first picture of how much damage there was to export volumes.”

Hurt also feels the H1N1 influenza virus may have longer-lasting effects, particularly if a second wave of the virus is in the news again this fall, as some medical experts fear.

“Even though H1N1 (influenza virus) in humans is not related to pork consumption, simply having flu in the news probably means there will be some continued loss of pork export demand,” he said.

Although producers couldn’t get a break in the past two months, their luck may have shifted with summer weather more favorable and yield prospects rebounding, he said.

“On April 24, when news of H1N1 (influenza virus) broke, July corn futures were $3.86/bu. They reached a high of $4.50/bu. in early June and now have dropped closer to $3.40/bu. July soybean meal was $318/ton on April 24, reached $433/ton, and has now moderated a bit toward $400/bu. at this point,” he said.

“Estimated production costs are now near $48/cwt., live, for this summer and will drop closer to $46/cwt., live, this fall. Given current feed price expectations based on futures markets, estimated costs in 2010 would average about $46-47/cwt., live,” Hurt said.

The Purdue economist predicted average prices in the higher $40s this summer and in the mid-$40s in the final quarter of 2009. Further, he projected prices should trade in the mid- to high-$40s this winter, move to the low-$50s for the spring, then climb to the low- to mid-$50s in the summer of 2010, especially if the impacts of H1N1 are negligible.

“These prices and costs would mean that producers would continue to operate with losses of about $5 to $7/head for the second half of 2009, which is at least an improvement over an estimated loss of $20/ head in the first half of 2009. “Profitability could return by late winter 2010,” he said.

Corn prices are lower right now than many had anticipated, and ownership of corn for the coming year’s feeding needs should be considered. Soybean meal prices should also modify as the more abundant new crop supplies and as markets this winter look to the restoration of the southern hemisphere crop. Waiting to cover meal needs seems wise at this point, he noted.